2015’s Best Tax Deductions for Students

Want to Save Thousands of Dollars?

No one likes paying taxes, but all of us have to – (that includes penniless college students).

The harsh reality of the current tax code in America is that it’s got a lot of loopholes, and that those in the know are able to save a lot more money than those who aren’t.

The good news is that college students willing to do some basic research about how the tax code works (like you) come across bits of news (like this post) that will help them save thousands of dollars.

This year is no different from any other, and for 2015 there are a suite of excellent tax deductions available to college and university students, some of which are sure to save you a great deal of cash.

Here are three of the most powerful education-related tax breaks, each of which should help you reduce your tax liabilities for the 2014 fiscal year.

The American Opportunity Tax Credit

This is an excellent program for those college and university students that qualify, but one which is unfortunately limited by severely restrictive eligibility conditions.

To qualify for the American Opportunity Tax Credit, you must:

• Be in your first four years of higher education
• Be enrolled at least half-time in a degree-seeking program
• Not claim the credit for more than four years
• Not have a felony drug conviction on your record

Should you qualify for the American Opportunity Tax Credit, the good news is that you’ll be able to receive a tax credit of 100% of the first $2,000 in eligible higher education expenses, as well as 25% of the next $2,000.

That means that if your qualifying expenses add up to more than $4,000, this tax credit will save you $2,500 this year!

Other conditions for qualification include that your modified adjusted gross income (also called MAGI) must be less than $80,000 (or $160,000 for joint filers) to take the full tax credit, and your MAGI must be less than $90,000 (or $180,000 for joint filers) to take any credit at all.

The best part about this program is that it’s a tax credit, not a tax deduction, meaning that it reduces your tax liabilities (not just your taxable income) on a 1:1 ratio.

In other words, the tax credit of $2,500 saves you an actual $2,500, whereas a tax deduction of $2,500 just allows you to reduce your reported income by $2,500 (saving you some percentage of $2,500… depending on which tax bracket you fall into).

Another great benefit to the American Opportunity Tax Credit is that it’s partially refundable, meaning that even if this program brings your tax liability down to zero, you’re still eligible to get up to $1,000 of the credit as a tax return!

The Lifetime Learning Credit

It’s not as powerful as the American Opportunity Tax Credit, but the Lifetime Learning Credit (LLC) is still really useful to students, including students who aren’t even enrolled in degree-seeking programs.

The LLC can definitely save you some serious money, because it gets you 20% of the first $10,000 in tuition and other qualifying educational expenses, allowing you to save up to an additional $2,000 in taxes!

Unfortunately, this credit is not partially refundable, so while it can be used to reduce your tax liability to zero, it can’t take it further, meaning it won’t let you actually take back money (it just reduces the amount you’re forced to pay).

In addition, MAGI limitations on taking the full LLC are limited much more severely, with a limit of $52,000 for single filers, and $104,000 for joint filers.

The great news is that you don’t even have to be enrolled in a degree program to take advantage of this credit, and, in fact, you don’t even need to be enrolled at least half-time, or be in your first four years of college.

All you need to do to qualify for the Lifetime Learning Credit is be enrolled in at least a single course at a qualifying higher education institution.

Qualifying institutions are basically anything with an accreditation (most schools these days), so pretty much everyone who’s taking a college class (regardless of why they’re taking it), will qualify for this credit!

The Tuition Tax Deduction Program

The Tuition Tax Deduction lets you reduce taxable income by up to $4,000, which is great, and is typically the best option for students who either don’t qualify for the AOTC program, or who earn too much to claim the LLC credit.

But better yet, you can take the Tuition Tax Deduction even if you don’t itemize your taxes, making this one a no-brainer for many students.

Qualifications for the Tuition Tax Deduction are almost identical to those of the Lifetime Learning Credit, except the MAGI limits are significantly higher.

You can qualify for the Tuition Tax Deduction if your MAGI is less than $80,000 filing singly, or less than $160,000 filing jointly.

Which Education Expenses Qualify for These Programs?

After you’ve determined which programs you can leverage, it’s time to calculate how much of your education expenses meet the criteria for “qualifying expenses”.

First, all tuition costs qualify, but you can also deduct any academic fees or other required costs for attending your programs.

Unfortunately, only the AOTC lets you deduct costs for books, school supplies and other equipment that was required for your courses, but for many students, the tuition alone is going to fully maximize the amount of money you get as a credit, or deduction anyway.

Keep in mind that these programs will not allow you to receive credit or deduct expenses related to room and board, transportation, insurance, or other living expenses – these are purely for education expenses.

As long as you paid legitimate education expenses at some point in 2014, either for yourself or for a dependent, it’s highly likely that you’re going to be able to write some of that stuff off, and potentially save yourself a few thousands of dollars.

Have Questions?

I am not a licensed tax professional, so my ability to offer insight and advice on this topic is limited, but please do feel free to ask any questions that you might have in the Comments section below.

I’ll do my best to get you an answer, or a link to someone else who can give you an answer, within 24 hours from your posting.

Thanks for stopping by, and if you found the information on this page to be useful, please share it with a friend via Facebook, Twitter, Email, or IM.

By: Tim Marshall

Tim's experience struggling with crushing student loan debt led him to create the website Forget Student Loan Debt in 2011, where he offers advice, tips and tricks for paying off student loans as quickly and affordably as possible.